Tuesday, July 03, 2012

The Reserve Bank board is considered certain to sit on its hands for the first time in three months today amid signs its previous rate cuts are stabilising property prices.

The RP Data Rismark survey finds Sydney and Melbourne prices bounced back 1 per cent in June after slipping in May 1.2 and 2.7 per cent.

Daily data shows the turnaround began after the Bank’s May 0.50 point rate cut and gathered pace after its June 0.25 point cut.

“Things are improving, but we would need further gains to be assured of a stabilisation in house prices let alone a recovery,” said Westpac economist Matthew Hassan.

The Sydney median price is $541,000, down 2 per cent over the past year. The Melbourne median price is $480,000 - down 6.6 per cent.

Separate figures from mortgage broker AFG show a surge in refinancing to take advantage of the Reserve Bank rate cuts totalling 1.25 percentage points since November...
Two in every five of the new mortgages sold in June were for borrowers wanting to refinance rather than buy. In a sign that borrowers expect further rate cuts this year the popularity of fixed rate loans slumped to its lowest point since September. One in every six home loans were at fixed rates, down from one in every four in March.

Every one of the 23 market economists surveyed by Bloomberg expects the Reserve Bank to stay its hand today - an unusual consensus. Pricing in the futures market which is notorious for overestimating the likelihood of rate cuts puts the probability of a cut today at just just 16 per cent.

AMP chief economist Shane Oliver said a spate of strong employment news since the June board meeting will leave the board feeling it can wait before cutting again.

‘‘I tend to think because they cut at two meetings in a row, and because the growth and employment figures surprised on the upside, they would probably be inclined to sit back and wait and see,’’ he said.

Deutsche Bank economist Adam Boyton said he thought the Bank would cut again later this year.

‘‘Consumer confidence is lower now than when the Bank started to move at the end of last year. In an environment where the terms of trade are declining, even economic growth of the sort we have had isn’t going to be enough to stop unemployment from drifting up.’’